Roth TSP vs. Traditional TSP: What’s Better in 2025?

With potential tax changes on the horizon and evolving retirement goals for many federal workers, one question keeps coming up:

Should I be contributing to the Roth TSP or sticking with the Traditional option?

In today’s edition, we’ll break down:

• How both TSP options work

• What the 2025 tax brackets mean for your paycheck and retirement

• And how your age, income, and career stage affect the smartest choice for you

Let’s get into it.

2025 Tax Brackets & What They Mean for You

As of 2025, federal income tax brackets have adjusted slightly for inflation. Here’s why that matters:

• If you're in a lower tax bracket now, Roth contributions may be wise—you pay tax at today’s lower rate and enjoy tax-free growth.

• If you're in a higher tax bracket, Traditional contributions may reduce your taxable income today—ideal if you're maximizing take-home pay or nearing retirement.

🔔 Heads-Up: Tax laws are scheduled to sunset in 2026, potentially raising rates for most taxpayers unless Congress acts. This makes 2025 a strategic year to review your contribution mix.

Which Is Better for You in 2025?

Here’s how to think about your situation:

Roth TSP Might Be Better If:

• You’re early or mid-career and expect your income to rise

• You think taxes will be higher in retirement

• You want more tax-free income later in life

• You don’t need the upfront tax deduction now

Traditional TSP Might Be Better If:

• You’re close to retirement and want to reduce taxable income now

• You expect to be in a lower tax bracket later

• You're maximizing contributions and want a tax break this year

📊 Tip: Consider a Split Strategy

You don’t have to choose one or the other. Many TSP participants use a 50/50 or custom split between Roth and Traditional contributions. This builds flexibility for future withdrawals and tax planning.

Action Steps for Federal Employees in 2025

1. Review your current TSP contribution type in your myPay or TSP.gov account.

2. Estimate your future tax bracket with a simple projection tool or financial planner.

3. Adjust your contributions accordingly—especially before potential tax changes in 2026.

4. Talk to a retirement counselor if nearing your retirement window (5 years out is ideal).

Final Thoughts

Tax diversification is just as important as investment diversification. Choosing between Roth and Traditional TSP isn’t a one-time decision—it should evolve with your career, income, and retirement goals.